Eight Ways to Make a Budget Work

Eight Ways to Make a Budget Work

 

The budgeting process requires careful analysis and high standards. Keeping goals can prove difficult because of unexpected costs. There are eight simple ways to make a budget work for you. Prioritize, remain flexible and keep track of economic changes.

Expectations

• Keep realistic expectations about the budget that you propose. Do not overshoot your capability and hope for too much in a single year or quarter. Look at comparable companies or personal budgets as a guideline for a realistic goal. If your industry average is 15 percent net profit, do not expect to hit 30 percent net income.

Historical Values

• Use historical values as a baseline for budget projections. Do not stray too far from those baseline values unless something unexpected has occurred in the recent past. For a personal budget, this may be a raise at work while a change for a business budget would be a large new contract.

Adjust

• Adjust budget values flexibly. Rather than a blanket increase of all values by a fixed percentage, take a more nuanced approach. Examine the line items individually and slowly alter them to configure to the new market realities. For example, if gas prices are up but revenue is not expected to increase as much, adjust each item to reflect the changes and reduce the income.

Keep it Simple

• The old motto of "Keep it simple stupid" (KISS) applies to the budgeting process as well as business in general. Take the entire budgeting process one step at a time and do not expect a complete overhaul or change in the budget to occur in one quarter or even in one year.

Allow for Mid-Course changes

• Do not get locked into a budget; markets change throughout the period. Plan to revisit your budget periodically to review and update your budget projections. Do not panic if you have to revise down your projections; this is fairly common. Flexibility helps makes more productive budgets.

Set Priorities

• Prioritize certain investments or long-term goals. Make sure that the budget is configured to attain those results. If it is a personal budget, set retirement savings or near-term goals like a car purchase or education. For a business, a priority may be to increase dividend payments or to increase free cash flow for internal investments and employee training.

Build a Safety Net

• All budgets should have room for error in case of miscalculation. Build in a safety net for your budget of several percent of overall revenue. Expect that you will not reach all of your goals. Be especially mindful of debt payments or other financial obligations.

Don't Give Up

• Stick to your budget in the fact of hardship, even when things look bleak. Every entrepreneur goes through ups and downs, and most of the time the pessimistic scenario seams more likely. Depending on the industry, a large portion of the new businesses fail. However, do not give up easily; perseverance help to make a small business through the rough periods.